The complicated job of reporting international revenue
The enactment of the Black Money Act in 2015 instituted a notable makeover in revenue tax returns (ITR) to envelop in depth disclosures capturing particulars of international belongings and revenue, making the intent loud and clear.
The I-T division, with an goal to discourage individuals from evading tax or parking funds overseas and allow repatriation of funds stashed overseas, has designed an efficacious reporting mechanism within the ITR itself, for monitoring offshore revenue and belongings of a resident taxpayer. The spree of modifications to ITR kinds has on the one hand assured finer particulars of taxpayer’s belongings and revenue, and however given heebie-jeebies to taxpayers.
A resident taxpayer holding international belongings or international curiosity at any time through the related accounting interval must essentially disclose the identical within the ITR kind. Therefore, a international asset or curiosity held even for a single day through the 12 months triggers the reporting requirement. The stipulation applies solely to ‘ordinary residents’ and therefore, is an enormous sigh of aid for ‘not ordinarily residents’ and ‘non-residents’. The revenue tax legal guidelines make ITR submitting necessary for particular person taxpayers who might albeit not be required to file ITR attributable to revenue being beneath fundamental exemption restrict, if one is a ‘beneficial owner’ or is a ‘beneficiary’ of any international asset or international monetary curiosity.
The ITR earmarks a separate part ‘Schedule FA’ to seize particulars of doable variants of international belongings, international pursuits and corresponding revenue derived therefrom by a resident taxpayer. The Schedule, nevertheless, doesn’t function in ITR 1 and ITR 4, which may land sure taxpayers in a quandary. For occasion, a person having solely wage revenue (no more than ₹50 lakh) could also be of the opinion that he’s compliant by submitting ITR 1 solely to find that the ITR kind chosen may very well be incorrect if he holds international belongings. Thus, a taxpayer holding international belongings ought to become familiar with and be diligent whereas deciding on the relevant ITR kind, to keep away from flawed return kind, being seen as submitting non-compliance.
Schedule FA deviates from the ‘financial year’ idea and makes references to belongings held through the accounting interval, to deal with issues the place international jurisdictions internet hosting the asset/account undertake a FY apart from the India FY (i.e. 1 April to 31 March).
The Schedule is designed in a complete method and solicits particulars of international depository accounts and international custodial accounts held by a taxpayer together with peak balances through the interval. Investments in international fairness and debt, abroad immovable property are some aspects that might come to 1’s thoughts impromptu and kind a part of the disclosure requirement.
Financial curiosity in a international entity whether or not as an agent, nominee or legal professional can also be embraced by the Schedule. Having a signing authority in a international checking account additionally topics a resident assessee to such reporting.
A vital facet is conversion of worth of international belongings and revenue into the reporting forex (INR). Values in Schedule FA are required to be disclosed after changing them into Indian forex by making use of the “SBI telegraphic switch shopping for charge” of international forex as on the date of peak steadiness within the account or on date of funding or deadline of accounting interval.
Due to its in depth nature, taxpayers may are likely to miss minute disclosures in Schedule FA, making it incomplete and this may very well be seen as a non-disclosure, although unintentional. The rigours of penal penalties which once more emanate from the Black Money Act are far reaching and embody a tax legal responsibility at flat charge of 30% of the worth of undisclosed international asset or revenue and moreover, a penalty of thrice of the tax so computed.
Disclosure in Schedule FA doesn’t absolve the taxpayer from encapsulating similar particulars underneath different sections of the ITR, even at the price of duplication. For occasion, shares held in an unlisted international firm needs to be individually disclosed within the ‘General’ part of ITR kind as effectively. Individuals misapprehend such disclosure requirement which can end in inconsistencies in reporting. In addition, the place the entire revenue of a person exceeds ₹50 lakh, disclosure of international belongings in Schedule AL wants reiteration. The multitudinous reporting necessities for international belongings and revenue warrant not only a one-time knowledge collation exercise on the time of return submitting however requires the taxpayer to be meticulous in monitoring variations of their international asset and revenue profile all year long. Though painstaking, no facet will be dominated out as trivial and diligence is the important thing to insulate from unintended punitive penalties.
Sandeep Jhunjhunwala is associate, Nangia Andersen LLP. This column was co-authored by Amita Jivrajani and Abhishek Mehta.
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